Grassley on Tax Reform and Impact on Multinational Companies

Since
tax reform was enacted in 2017, our economy has grown and strengthened, with
American families and businesses seeing real benefits. Unemployment rates have
dropped dramatically, with unemployment among Hispanic, Latino and African
American workers at record lows.

According
to the Bureau of Labor Statistics, average hourly earnings have grown at a rate
of 3 percent or higher for 16 consecutive months, with the largest wage gains
concentrated in the bottom quarter of the wage scale. In short, lower-income
workers are seeing the highest wage growth.

But,
instead of looking at the positive economic effects of tax reform, our
Democratic colleagues insist that large corporations have received a massive
giveaway, and only the wealthy have benefited.

This
simply isn’t true.

Tax
reform addressed a number of issues that were frequently highlighted by both
parties. In particular, tax reform made enormous progress toward creating a
more competitive environment for American companies.

Before
tax reform, the combined U.S. Federal and state corporate tax rate was the
highest in the developed world – 15 percentage points higher than the average
of the other 35 countries in the Organization for Economic Cooperation and
Development, which is commonly known as the OECD.

Inversions,
foreign acquisitions of U.S. companies and the erosion of the U.S. tax base
were significant problems. And, with our worldwide tax system, companies were
incentivized to store corporate profits in low-tax jurisdictions instead of
reinvesting them back in the United States.

Ironically,
Democrats highlighted these same issues in the lead up to tax reform. They’re
only partisan issues now because tax reform was a Republican effort. But, both
sides of the aisle knew that these issues had to be addressed for U.S.
companies to remain competitive and for the U.S. economy to continue leading
the world.

Critics
of tax reform complain that the 21-percent rate is too low. But with the
average corporate tax rate of 21.7 percent among the OECD countries today, the
United States is finally in line with our peers.

As
a result, U.S. companies are more competitive, and investments in the United
States are more attractive to both U.S. and foreign companies.

After
tax reform, business investment rose by 6.4 percent in 2018. While a weaker
global economy, tariffs and other factors subdued growth in 2019, business
investment in 2018 and 2019 combined was still $5.7 trillion, hitting record
highs.

Capital
expenditures of S&P 500 companies have risen by 17 percent since tax
reform, and research and development expenditures of S&P 500 companies rose
by 18 percent. Hardly the anemic response to tax reform that the critics would
have us believe.

In
the seven quarters since enactment of tax reform, U.S. companies have brought
back more than $1 trillion of foreign earnings.

U.S.
companies are using these earnings to finance new capital expenditures,
increase research and development, increase payrolls, pay down debt and return
cash to shareholders and retirement accounts. Companies are putting those earnings
to work in this country, not leaving them abroad.

But,
we also took care to ensure that companies wouldn’t be able to take advantage
of the new U.S. tax system. Tax reform made significant strides to address
inversions, foreign takeovers of U.S. companies, and base erosion.

Together,
the lower tax rate and new international rules have changed the way that
companies structure their business operations.

For
example, Assurant, a global insurance company, changed its acquisition
agreement so its new parent company remains in the United States. Broadcom, a
technology firm, announced it would return its headquarters to the United
States after tax reform. Similarly, several energy and pharmaceutical companies
that had previously moved out of the United States also made the decision to
return, primarily because of tax reform.

Tax
reform has leveled the playing field and made the United States a far more
attractive place to do business. Hardly the dire consequences that critics
would have us believe.

Not
to be deterred, the critics continue to look for misleading information to
distort the picture.

Most
recently, they’ve pointed to CBO projections as evidence that tax reform and
recently issued Treasury regulations have provided a windfall to corporations.

I
hate to see CBO’s work manipulated to say something it clearly does not.

First
and foremost, CBO’s downward adjustment of expected corporate tax receipts does
not imply that CBO scores particular Treasury regulations or that a regulation
departs from congressional intent.

In
particular, CBO adjusted its projections because we now know that Bureau of
Economic Analysis estimates of corporate receipts between 2016 and 2018 were
overstated. In short, even pre-tax reform projections of corporate profits were
too high. So, when that estimate of corporate profits is corrected, it
translates to lower tax receipts.

CBO
also took into account current economic factors, like recent trade actions and
tariffs, the strengthening of the U.S. dollar and the softening of foreign
economies, all of which affect expected corporate profits and ultimately tax
receipts.

In
addition, CBO revised its projections to reflect everything we’re learning
about implementation of the new tax rules, including regulatory guidance, new
forms and instructions and modeling improvements to better reflect updated
economic projections.

And,
CBO is only beginning to take into account how U.S. businesses are responding
to the new tax rules and Treasury guidance. As many regulations are still being
finalized, businesses are only starting to have the needed certainty to invest
in new property and equipment, engage in mergers and acquisitions and enter
into new business transactions.

CBO’s
projections are also based on preliminary data. Tax returns for the first year
of the new law were filed less than six months ago. The final data will not be
available from the IRS until later this year and even then will still take time
to fully analyze.

All
of these factors go into CBO’s revised projections of corporate tax receipts,
and none of them support the claim that Treasury provided a windfall to
corporations. There simply is no basis for the critics’ claim that the revision
to CBO’s estimate of corporate receipts means that Treasury has given away the
store to big corporations through its regulations.

Despite
the critics’ relentless attacks, the benefits of tax reform are proving out.
I’m encouraged by the promising economic data that suggests that American
workers, families, and businesses are seeing the positive effects. We must
continue to promote policies that encourage U.S. businesses to keep operations
on American soil, increase wages and reinvest foreign earnings in the United
States.

I
hope that my Democratic colleagues will stop criticizing the policies that have
strengthened our economy, and consider how we can work together to make our tax
laws work even better for American businesses and workers.